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Notes on the Utility Function used in the Monopolistic Competition Model
The utility function is:
4
u(q , q
) =
G
q
,
where 0 <
"
<1.
1
2, .
.........
i
"
i=1
This function is sometimes called the “love for variety” utility function.
Example 1:
Assume that there are four varieties available and that
"
= 1/2 .
Suppose the agent can consume
a total of 16 units. We will show that the agent will be happier consuming 4 units of each of the
commodities than 8 units of only two commodities or 16 units of a single commodity.
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This note was uploaded on 05/15/2008 for the course ECON 467 taught by Professor Muniagurria during the Summer '06 term at University of Wisconsin.
 Summer '06
 Muniagurria
 Monopolistic Competition, Utility

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